Loan marketers in the car finance industry are re-evaluating their entire approach to intermediary campaigns after a high profile court ruling.
A shock court of appeal judgment ruled that lenders and intermediaries offering car finance have not been adequately making clear the incentive payment relationship that exists for loan referrals.
Traditionally dealers and specialist car finance loan brokers have taken a commission from lenders for sending borrowers their way.
Marketers to these groups used to heavily focus on “price” in that they would emphasise the commission they offered to intermediaries when they launched new products for distribution through intermediaries.
In other regulated financial markets, such as the Independent Financial Advice market, this practice was stamped out nearly two decades ago as a result of the Retail Distribution Review (RDR) but car finance was not in scope of this body of regulation.
As a result of the court case, Close Brothers and BMW stopped writing new dealer loans, according to industry sources. Other lenders have also paused in writing new business, while alternative arrangements are made.
A report by The Guardian suggested that Lloyds Bank had immediately suspended commission payments to intermediaries as result of the ruling.
In a statement, the industry trade body – the Finance and Leasing Association, said it was surprised by the ruling.
Stephen Haddrill, director general of the FLA, described the judgment as “significant and unexpected.”
He said: “The implications stretch far beyond the motor finance sector, making it an issue that demands the immediate attention of the Financial Conduct Authority.”